What is a Stock Exchange

If you are a beginner and do not understand the stock exchange, here is a simple definition-it is where the buying and selling of shares takes place. The whole process really is not complex. Stock firms simply go public by selling shares to investors, which are in turn bought and sold via the exchange. The forex exchange market is very similar-the only difference is that countries’ currency is bought instead of stocks of a company.

Basic terminology

Before you learn how to become profitable using a stock exchange, you need to know some basic terms related to investing. Here are the 2 most important you must be familiar with:

Stock prices

This is the cost that a share of a company is selling for. It is determined by a number of variables, such as the economy, the trading trends, as well as the health of the firm. Short term, the price tends to be impacted by trends more so than the company’s health, but long term is more affected by how the company is performing. This is why day trading and long term investing are 2 totally different methods, and require completely different knowledge sets.

Market capitalization

This is simply the total value of the company’s stock selling on the stock exchange. The way to figure it out is to multiply the amount of shares outstanding by the cost. This number is actually extremely important. Once you know it, you can then figure out the value of the company.

From there, you have to determine if the capitalization is above or below the value of the company. You want to look for stocks with a market capitalization that is less than what the company itself is worth. This is because long term, stock prices tend to reflect the performance of the company. If you find an undervalued stock, then it would probably make a good long term investment because it will likely go up down the road.

The goal of investing in the stock exchange

For most investors, the objective is to buy low and sell high (there are exceptions such as short selling). This is true whether investing in stocks or forex currency. So it sounds simple. But saying you are going to buy low and sell high and actually doing it are 2 different things. After all, if it were that easy everybody would be wealthy.

How to make money

The key is to pick an investing strategy (short or long term) and become an expert at that. For most people, long term trading works out best because it offers passive income-something that can never be achieved by day trading. This is how to become profitable using the stock exchange or forex exchange shortly.